How Deferred Compensation Affects Social Security Benefits

Working during retirement can affect your Social Security benefits.

The federal Social Security retirement benefits program provides monthly income to individuals who meet certain age requirements and who have worked in jobs that are subject to taxes under the Federal Insurance Contributions Act. Nine out of 10 Americans work in positions that are covered by Social Security.

Earnings Limit

After you retire, you can continue to work while receiving Social Security benefits, but your benefits will be reduced if your earnings exceed certain limits during the months before you reach your full retirement age. Your monthly benefits could be reduced by $1 for each $2 to $3 of your earnings that exceed the limit, depending on your age.

Deferred Compensation

Your earnings are counted toward the annual earnings limit based on when you earn them, not when they are paid to you. Deferred compensation, or deferred income, such as accumulated sick or vacation pay, bonuses and stock options, will be counted toward the earnings limit for the year you earned them even if you do not receive the compensation until a subsequent year.

Exception

If you retire during the year, you may have already earned wages up to or beyond the annual earnings limit. In this case, a special rule allows you to receive Social Security benefits during the first year of retirement based on your monthly, rather than annual, earnings.

References

• Historical Background and Development of Social Security: Program Growth
• What You Need To Know When You Get Retirement Or Survivors Benefits: How Earnings Affect Your Benefits

Resources

• MyMoney.gov: Planning for Retirement / Retiring:
• The Motley Fool: Retirement